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Exam 12: Long-Term Liabilities: Bonds and Notes

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Question 1

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The balance in Discount on Bonds Payable

A) should be reported on the balance sheet as an asset because it has a debit balance
B) should be allocated to the remaining periods for the life of the bonds by the straight-line method,if the results obtained by that method materially differ from the results that would be obtained by the effective interest rate method
C) would be added to the related bonds payable to determine the carrying amount of the bonds
D) would be subtracted from the related bonds payable on the balance sheet

E) A) and B)
F) C) and D)

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Question 2

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If bonds are issued at a premium,the stated interest rate is

A) higher than the market rate of interest
B) lower than the market rate of interest
C) too low to attract investors
D) adjusted to a higher rate of interest

E) A) and B)
F) None of the above

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Question 3

Multiple Choice

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On January 1,Year 1,Zero Company obtained a $52,000,4-year,6.5% installment note from Regional Bank.The note requires annual payments of $15,179,beginning on December 31,Year 1.The December 31,Year 3 carrying amount in the amortization table for this installment note will be equal to

A $300,000 bond was redeemed at 98 when the carrying value of the bond was $292,000.The entry to record the redemption would include a

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be

Which of the following is not an advantage of issuing bonds instead of common stock?

Balance sheet and income statement data indicate the following: $\begin{array}{l}\begin{array}{lll}\text { Bonds payable,6 \% due in 15 years } \\\text { Preferred 8 \% stock,\$ 100 par } \\ \text { no change during the year } \\\text { Common stock, \$ 50 par } \\\text { no change during the year } \\\text { Income before income tax for year } \\\text { Income tax for year } \\\text { Common dividends paid } \\\text { Preferred dividends paid }\\\end{array}\begin{array}{lll} \$1,200,000\\\\200,000\\\\1,000,000 \\320,000\\80,000 \\60,000 \\16,000\end{array}\end{array}$ Based on the data presented above,what is the number of times bond interest charges were earned round to two decimal places?

If a company borrows money from a bank as an installment note,the interest portion of each annual payment will

The buyer determines how much to pay for bonds by computing the present value of future cash receipts using the contract rate of interest.

On the first day of the fiscal year,Lisbon Co.issued $1,000,000 of 10-year,7% bonds for $1,050,000,with interest payable semiannually.Orange Inc.purchased the bonds on the issue date for the issue price.Prepare entries to record the following transactions for the current fiscal year. a- Issuance of the bonds. b- Second semiannual interest payment. c- Amortization of bond premium for the first year,using the straight-line method of amortization.

When the market rate of interest is less than the contract rate for a bond,the bond will sell for a premium.

If the straight-line method of amortization of bond premium or discount is used,which of the following statements is true?

The prices of bonds are quoted as a percentage of the bonds' market value.

Franklin Corporation issues $50,000,10%,5-year bonds on January 1,for $52,100.Interest is paid semiannually on January 1 and July 1.If Franklin uses the straight-line method of amortization of bond premium,the amount of bond interest expense to be recognized on July 1 is

On the first day of the fiscal year,a company issues a $500,000,8%,10-year bond that pays semiannual interest of $20,000 $500,000 × 8% × 1/2,receiving cash of $530,000.Journalize the entry to record the issuance of the bonds.

Using the following table,what is the present value of $40,000 to be received in 5 years,if the market rate is 7% compounded annually?

The Levi Company issued $200,000 of 12% bonds on January 1 at face value.The bonds pay interest semiannually on January 1 and July 1.The bonds are dated January 1,and mature in five years,on January 1.The total interest expense related to these bonds for the current year ending on December 31 is

The interest rate specified in the bond indenture is called the

When callable bonds are redeemed below carrying value

Luke Corp. issued $2,000,000 of 20-year, 9% callable bonds on July 1, Year 1, with interest payable on June 30 and December 31. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: